Sweden's pensions and parent policies keep old age worries at bay

Daniel Dickson

5 Min Read

STOCKHOLM (Reuters) - Like most of Europe, Sweden is struggling with an aging population. But thanks to people like 65-year-old Malin Engstedt the country is in a better position than most to tackle its demographic challenges.

The Stockholm Cathedral is seen in Gamla Stan or the Old Town district of Stockholm in this June 9, 2010 file photo. REUTERS/Bob Strong/Files

“I thought half a year ago that maybe I could quit by the end of the year. But the closer to that I got, the less I felt like stopping working,” said Engstedt.

Having worked all her life, Engstedt could afford to stay at home if she wanted to. But her pension will be higher if she retires later, and she is still enjoying work. So right now she plans to take on a new job in communications.

“I don’t have grandchildren and I don’t play golf,” she explains of her decision not to retire.

But in fact Sweden’s canny social policies are the reason so many of its baby boomers are choosing to keep going to the office. The country’s pensions reform and generous parental leave have resulted in Europe’s highest employment rate - with a strong showing among women and the elderly - meaning more working people pay taxes to fund the welfare state.

Sweden’s employment rate last year was 74.4 percent versus the EU average of 64.1, according to Eurostat, and its 73.6 percent employment rate for people between 55 and 64 dwarfs the EU average of 50.1 percent.

The country is also helped by a population that is rising as numbers in other European nations dwindle: By 2050 Swedes will number 11.4 million from today’s 9.7 million, according to statistics Sweden, and the median age will rise to 43 years, says Eurostat.

By contrast, Germany’s 82 million residents will fall to 74.7 million by 2050 and the median age will rise to around 50.

“(Sweden) is doing much better than almost everyone else, both because of the demographics and because of the policy settings,” said OECD economist Christophe Andre.

INCENTIVES

Sweden provides incentives to keep people employed right along the length of their working lives.

Parents are able to share childcare because they get 480 days of leave per child, and subsidized day care never costs more than 1,260 Swedish crowns ($170) a month.

As a result employment among women is 72.5 percent - the highest in the EU - and no-one criticizes the armies of dads nicknamed “Latte Pappas” who look after the children during the day.

For older Swedes, the right to take sabbaticals from work in order to study helps to keep people learning - and employed - throughout their lives.

And when people start to think about retiring, the country’s recently reformed pension system tempts them to keep going that little bit longer instead.

A person who retires at 63 gets 12 percent less than someone who waits til 65, the most common retirement age. But those who work until 69 are rewarded with a pension almost 30 percent bigger than that of the 63-year-old.

“It does not pay to retire early but it is rather punished,” said Anders Forslund, professor and assistant director-general of The Institute for Evaluation of Labour Market and Education Policy, a government agency.

That Swedes see long working lives as normal was demonstrated in 2012, when center-right Prime Minister Fredrik Reinfeldt broached the idea of retirement as late as 75. The statement sparked widespread debate - but it did not hurt him politically.

IMMIGRANTS STILL WELCOME

Reinfeldt’s government introduced some of the OECD’s most liberal regulations for immigrant workers, letting employers hire people from wherever they want as long as wages are not lower than for Swedes.

Despite a recent backlash against immigration - a trend right across recession-weary Europe - polls show a large majority of Swedes still support the tradition of welcoming asylum seekers.

Challenges remain, however, particularly in integrating migrants. Widespread riots in poor immigrant suburbs in 2013 highlighted the difficulties Sweden has had in absorbing asylum seekers, now arriving at about 100,000 a year, and employment rates among low skilled immigrants are nearly 25 percentage points lower than for native Swedes of similar level.

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Sweden is also facing other pressures - despite the pension system being formally disconnected from government finances - as life expectancy for an average 65-year-old has risen by more than two years to 85 since the 1994 pension reform.

That means the pension system, though successful right now, may in future come under pressure from voters to be more generous.

“Our pension system is economically sustainable the way it is constructed,” said Tommy Bengtsson, a professor of economic history at Lund University’s Centre for Economic Demography. “The question is whether it is politically sustainable.”